Hewlett-Packard CEO Meg Whitman doesn't look anything like Santa Claus, but she's carrying a huge sack on her back -- and it's not full of toys. It's filled with the detritus of more than a decade of predecessors' terrible management decisions that have cost the jobs of tens of thousands of HP employees, billions of dollars in shareholder value, and the reputation of an iconic Silicon Valley company.
She's also lugging around the legacy PC business, which has improved only recently because enterprises have finally begun to abandon the now-orphaned Windows XP and buy new PCs for the first time in years. Indeed, strong sales of corporate PCs saved the company from delivering a losing quarter and instead do better than Wall Street expected.
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Despite Whitman's optimistic promises of an end to the misery by 2016, even a mediocre quarter like the one HP reported yesterday looks good only because it didn't contain any really bad financial news or word that her target of as many as 16,000 additional layoffs has been increased. (If that many people are fired, it would bring the total of job cuts since Whitman got the corner office in 2011 to a jaw-dropping 50,000.)
HP is happy that its revenues stopped shrinking
I was hoping (but not expecting) that HP would fool Wall Street and return a big upside surprise. It didn't. Its results and the outlook for the next quarter were pretty much in line with what Wall Street expected. HP recorded sales of $27.6 billion in its quarter ended June 30, up 1 percent from $27.2 billion a year earlier -- a bit better than forecast. Earnings per share were 89 cents, compared to 86 cents a share in the year-earlier period.
It's worth noting that the slight increase in revenue was the first time in three years the company has recorded year-over-year sales growth. "Turnarounds are not linear," Whitman said on an earnings call with analysts and reporters. "Overall I'm very pleased with the progress we've made."
Very pleased? Oh well. It certainly could have been worse.
PCs, of all things, carry the day
It's ironic that the best-performing business segment was personal systems, which is to say PCs. Revenue was up 12 percent year over year with OK operating margins of 4 percent. Revenue from the sales of PCs to businesses was up 14 percent, while sales to individuals were up 8 percent. Notebook sales did the best, with an increase in unit sales of 18 percent.
Whitman said PC sales have been boosted by the refresh cycle following the end of support for Windows XP. That refresh cycle is a positive trend for PC makers, but one nearing its end, she acknowledged.
It's certainly possible that the slump in the PC business has bottomed out, and it's certainly true -- as HP CFO Cathie Lesjak noted in the company's earnings call -- that some tasks are best handled by a PC. But it's hardly an area of strong growth for the future. Given that reality, other segments of the company will have to pick up the slack fairly soon.